Quarter 2 review: 2019

Quarter 2 has come to a close, and what we’ve seen is much of a reflection of how the first quarter went. You can see the first quarter recap here.

Quarter 2: Things are Looking Up

The trend this year continues; markets around the world were on the upswing, especially equity markets.

Some of the steepest increases were in the U.S. stock market and global real estate, particularly the 10-year index returns.

Interest rates and unemployment rates continue to stay low, as well. But as we know, things can change pretty quickly.

Commodities on the Decline

One area where we did see a bit of a dropoff in quarter 2 was in commodities. (This is an asset class I tend to avoid, because it’s hard to determine what the growth prospects are long-term, and news cycles can drive returns.)

Overall, commodities saw a drop of 1.19%. Natural gas and cotton performed the worst this quarter, declining by 16.67% and 14.72% respectively.

Corn and wheat actually increased, by 14.24% and 13.36% each.

Other Concerns Still Linger – Inverted Yield Curve

Despite the continued economic growth, there are still some elements that could signal trouble ahead.

A yield curve plots bond interest rates by maturity on a graph. Those bonds are typically U.S. treasuries.

The usual graph shows shorter date yields being less than longer date yields, meaning that investors get higher rates on the longer-term bonds. A slope upward means investors expect growth to continue.

But an inverted yield curve graph illustrates that those longer-term bonds have a shorter yield compared to short-term bonds. That can show that investors are less confident in long-term growth, and therefore investing less money into long-term projects.

Historically, inverted yield curve have proceeded recessions. As of the end of June, the yield curve was inverted for a full quarter, which is typically a recession signal.

This is something I will continue to watch as we go through the third quarter.

Trade War Developments

Then there is the trade war. The U.S. continues to levy tariffs of 25% on about $200 billion of imports from China. President Trump announced levies of 10% for the remaining $300 billion of Chines imports that haven’t paid duties. If the U.S. continues to to raise tariffs, Morgan Stanley predicts a global recession within the next 9 months.

We don’t know for sure how the trade war will play out, or how it will affect the globe. But it’s a good idea to stay current on what’s going on.

Bottom Line

Market indicators are on the rise despite some local and global warning signs, but the next quarter or two could look very different.

Remember – keeping calm and not making snap decisions during economic rough patches is a good way to protect your wealth.

About Michael

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